Unlike US citizens and permanent residents who could apply for both federal and private MBA loans, the choice for international students is limited to private players that more often than not, require a co-signer as a guarantor.

However, you should first check with the financial aid department of the schools to which you are applying before approaching private lenders.

Private student loans

For availing of private student loans, you should have a good credit score. These loans often have a variable rate although a few institutions offer fixed rate student loans.

The student borrowers gain access to higher education that they might not otherwise be able to finance, and the investing community earn a financial and social return through their investment in future leaders and higher education, says Prodigy Finance.

Most of international student loans require a co-signer who is either a US citizen or permanent resident of the country. In addition, some lenders will ask for your social security number.

The processing of loan applications generally takes four to six weeks. A number of lenders including Wells Fargo, Citizens Bank, Sallie Mae, Union Federal and Discover provide loans to international students. These loans may require a co-signer from the US.

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However, new generation lending platform Prodigy Finance provides loans without the need for a co-signer which cover the cost of attendance minus other financial aid. The terms of each loan vary by school.

These ‘borderless’postgraduate student loans to international students,  are collectively funded by a community of alumni, institutional investors and qualified private investors.

The student borrowers gain access to higher education that they might not otherwise be able to finance, and the investing community earn a financial and social return through their investment in future leaders and higher education, says Prodigy Finance.

Federal student loans

Federal student loans, offered by the US Department of Education, have benefits over private student loans by way of being usually available at a fixed interest rate that would be lower than private loans.

US citizens and permanent residents have the option of applying for two types of federal MBA loans – Direct Unsubsidized Loans and Direct PLUS Loans for Professionals and Graduate Students, also known as Grad PLUS Loans. The Free Application for Federal Student Aid (FAFSA) has to be filled in as part of the application process for these loans.(Article Courtesy: TwoYearMBAWorld.com)

While numerous options of student loans are available, these may not be suitable for everyone, especially with the spectre of repayment looming large in the future. The return of investment (ROI) also cannot be always guaranteed.

Some others may be thinking of taking up Teaching & Research Assistantships (TA&RA). Such opportunities may also not be available all the time.

Under such circumstances, the best option would be to go in for a scholarship offered under various categories by the business schools. These may be merit-based or need-based aimed at certain specific categories of students.

The scholarships may be difficult to get, considering the large number of applicants, but definitely worth a try.

Candidates should first find out details of the offers under various categories. These could be based on nationality, gender, professional development or educational background.

The scholarship application forms are to be submitted as early as possible.

The merit based scholarships may fall in the categories of those with excellent academic record, leadership qualities or special skill sets.

The need-based scholarships take into consideration the financial situation of the candidate, assets and any outstanding loans or liabilities.

Candidates applying for scholarship may also have to submit a scholarship essay explaining the need for the scholarship and how you are the right fit for it.

Among the scholarships on offer for international students, the  Harvard MBA scholarship grants approximately $34,000 per year.

The School provides special interest fellowships for those with various interests or backgrounds. The Robert S. Kaplan (MBA 1983) Life Sciences Fellowship is for students aiming for a science-based career). The Horace W. Goldsmith Fellowship  (non-profit) is also available.

Wharton has several fellowships including those for students from emerging economies, Joseph Wharton Fellowships for outstanding achievements, Howard E. Mitchell Fellowships for outstanding students from under-represented backgrounds, Forté Fellowships for female students and Social Impact Fellowships for public or not-for-profit sector.

At Stanford, the Stanford Reliance Dhirubhai Fellowship is awarded to five students. This scholarship provides assistance to cover the tuition and fees for each of the two years of the program.

However, upon graduation, the candidates have to return to India and work for an Indian organisation for a minimum period of two years.

Columbia Business School offers the merit-based Toigo Fellowship for under-represented groups pursuing finance careers and the Forté Foundation Scholarship for women. In the need based category, scholarships are in the range of $7,500 to $30,000.

Chicago Booth has, among others, The India Trust Fellowship for those living and working in India and Akhtarali H. Tobaccowala Fellowship for students from India.

The Zonis Fellowship is for international student from an emerging economy, Canfield Private Equity Fellowship is for those with prior experience in private equity or investment banking, Forté Foundation Fellowship and Distinguished Fellows Program has full-tuition and $25,000 stipend each year. (Image Courtesy: Google)

How does one calculate it while considering the cost of living, lost wages and potential debt along with a projected post-MBA salary of $100,000? One of the tools available is average salary after graduation compared with debt or salary-to-debt ratio.

Going by the data provided by U.S. News, Wisconsin School of Business had the highest annual salary-to-debt ratio for full-time MBA graduates who found jobs paying an average of more than $100,000 in salary and bonus within three months of earning their degree.

The students at Wisconsin School could expect a 7.4-to-1 salary and bonus-to-debt ratio. It translates into an average salary and bonus of $114,815 and $15,481, on average, in debt.

Of the other ranked business schools with graduates earning more than $100,000 in salary and bonuses, for the Class of 2015, the Marriott School of Management at Brigham Young University reported salary and bonus to debt ratio of 5.4-to-1, the Hough Graduate School of Business at the University of Florida at 3.6-to-1, the Michael G. Foster School of Business at the University of Washington at 3.4-to-1 and the Smeal College of Business at Pennsylvania State University—University Park at 3.1-to-1.

According to the data submitted by the schools, U.S.News said the average salary for all schools was $91,940. More than one-third of the 129 ranked schools that submitted salary data had an average starting salary and bonus of more than $100,000 for their 2015 graduates. 

A typical MBA student from the Class of 2015 finished his or her degree with $50,054 in debt. Compared to other professional degrees, such as law or medicine, the debt component may seem less. But then the fact that MBA programs are shorter in length should be taken into consideration.

Student loan experts advice prospective MBA students to look beyond salary-to-debt ratio to calculate ROI. Since most business schools publish employment records with average salaries for different industries, MBA aspirants could use these numbers to project future salaries.

Another factor is the salary forgone while attending the MBA program besides the accumulated interest on student loans over 10 years. To calculate ROI, current salary should be subtracted from the expected future salary and that number be divided by the total cost. Total cost should include debt, forgone income and accumulated interest on a loan for 10 years.

Thus, an MBA graduate who earned $65,000 before his or her degree and now makes $100,000 with $55,000 in student debt could expect to get a return of around $195,000.

Meanwhile, most new graduate MBA entrepreneurs would have lower salaries as beginners in a new venture or company. Thus, those Business Schools that have MBAs pursuing entrepreneurial program, such as Babson College, might have a lower salary-to-debt ratio, according to Dan Macklin, co-founder of SoFi, a San Francisco-based financial technology company.

But then, a bad salary-to-debt ratio need not necessarily mean poor investment as it could rise in the long run. Thus long-term salary projections should be taken into consideration. As a counterpoint, an MBA graduate from Columbia University might end up heavily in debt though drawing a salary much higher than $100,000 with a low salary-to-debt salary ratio diminishing over a longer period of time.

Thus, a graduate with a higher debt load who eventually earns $180,000 might come out ahead of someone with a lower debt burden and lower salary over a 10- to 20-year period.

I still remember my school days when tuition fee was the last thing a student had to worry about – students were focused simply on getting into the best college. The fee for courses such as B.Com. or B. Sc. or B.A. at Universities in India was very low and easily affordable. It was somewhere between Rs 1,000 to Rs 10,000 annually for a graduate level course.

Then came the boom in engineering and MBA courses across India. Private engineering colleges popped up everywhere. With a billion strong population, a large part of it young, the demand for professional courses in engineering, management, medical, fashion, CA etc went through the roof. The maximum number of students got attracted to engineering and MBA courses.

IITs, NITs, IIMs, AIIMS, NIFT – the craze for admission into these institutes was near madness.

Realizing the student’s ability to pay, colleges in the name of providing better infrastructure and maintaining their autonomy, started increasing tuition fees by leaps and bounds. Many of these top institutes are today out of the reach of at least the lower middle class in India. And this fact is very troubling and disturbing.

Many of the top institutes in India are today out of the reach of at least the lower middle class in India

The Indian economy was doing well from 2002 to 2008 and no one objected to this increase in tuition fees. During the time of the first NDA govt. (1999 to 2004), the authorities noted this increase and rightly objected to it, but this came at the twilight of this government’s tenure. 

Predictably, institutes opposed and made huge hue and cry on this move. The NDA didn’t come back to power in 2004 and institutes were now free to go ahead with their plans as the next govt. under UPA saw no problem with sky high tuition fees.

In 2006, the tuition fees at IIMs was about 4 lakhs INR for the two-year PGP programme but then it started increasing sharply year on year. At the same time privately funded B-Schools such as Indian School of Business, Hyderabad were charging almost 22 lakhs INR for their one-year MBA course.

Seeing the potential of students to pay hefty fees for a prestigious tag and in the name of the so called ‘great placements’, the fee at IIMs reached an all time high of anywhere between 12 to 24 lakhs INR by 2012 for various courses. A sharp increase of 3 to 6 times in a short duration of 6 years! It is noteworthy that placements remained flat during the same period.

The average placements at top B-Schools for their two-year course were in the range of 8-14 lakhs INR in 2006 and the figure was not very different in 2012. Placement took a hit during the economic slowdown and many students graduated without decent jobs and a few even without jobs. (yes…I am still talking of the scenario at the top 20 B-Schools in India.)

In recent years I have observed an increasing turmoil among applicants – they have started questioning the usefulness of such costly education. They ask these questions to alumni rather than to the govt. or institutes who are all benefiting from high fees

Interestingly IIM Lucknow acknowledged this fact, albeit in a low-key manner and reduced its fee from 12 lakh to 10 lakh about a year ago for its two-year PGP programme. However other colleges  failed to acknowledge the grave situation and kept on hiking the fee for their courses.

India has a population of 1.2 billion and there is no dearth of applicants. But in recent years I’ve observed an increasing turmoil among applicants – they have started questioning the usefulness of such costly education. They ask these questions to alumni rather than to the govt. or institutes who are benefiting equally from high fees.

The middle class in India always aspired to send their children to elite colleges but by the very definition the middle class has limited savings. In order to send their children to the best institutes, parents cut down on so called ‘luxury’ expenses such as annual vacations, or painting the house, or buying a car.

But even this is not enough. 90% of the students cannot afford huge tuition fees without education loans and banks are doing their best to milk them for all they are worth.

In order to grab a slice of the action, banks in India cleverly started offering loans at heavy interest rates of 11-14% without any collateral (security).

Initially the banks were not even allowed to offer collateral free loans for a sum greater than 5 lakhs INR, but they skewed the policy and started offering loans up to 25 lakhs INR in tandem with rising tuition fees.

The same people who want to to do something good in their lives and even for their nation through their hard work took on these heavy loans in the range of 10 to 25 lakh – many felt trapped. The market demand did not keep up with the dreams being sold – jobs started disappearing 2008 onwards

Colleges possibly didn’t want to go beyond the Rs 25 lakh fee limit as it could have raised more eyebrows and unrest among the applicants or might have become uncompetitive as compared to fees at foreign schools.

It is interesting to note that had banks not offered these collateral free loans to students, colleges would never have been able to raise their fees up to the crazy levels we see now.

It was a clever move on the part of the colleges and banks – the whole education loan business and education ecosystem started whirring but the victim was the common man.

Soon the same people who want to to do something good in their lives and even for their nation through their hard work took on these heavy loans in the range of 10 to 25 lakh – many felt trapped. The market demand did not keep up with the dreams being sold. The disappointing fact is that the jobs started disappearing 2008 onwards.

First the reason cited was a global slowdown. But the global economy recovered within a year. However in India, there was no sign of a rosy economy. Scams broke out during the second tenure of the UPA regime in India and investments in India hit an all time low. GDP growth rate fell from high of 9% in 2006 to 4.5% in 2012. The manufacturing sector growth remained flat or rather it was in minus. Suddenly there was a scarcity of high paying jobs. 

Education Loan interest rates range somewhere between 11 to 14%+ at most Indian banks. In contrast a home loan is offered at 10% and a car loan is offered at 8%. How can banks charge more interest rate for something as noble as education?

The bright guys who were passing out from top colleges with heavy education loans were now flummoxed about where they should go. A few chose the entrepreneurship route. But this phenomenon is limited to only very few, with probably only a 5% success rate. With a heavy loan which is almost equal to 10 years of any middle class family’s savings, students were literally forced to join sub-par jobs not matching their skills or aspirations.

It is troubling to see that an average Indian is paying heavy income tax and education cess under service tax, but when it comes to his or his children’s education, he again has to cough up heavy tuition fees with high bank loan interest rates even at top govt. institutes. Where are our taxes going? 

Education Loan interest rates range somewhere between 11 to 14%+ at most Indian banks. In contrast a home loan is offered at 10% and a car loan is offered at 8%. How can banks charge more interest rate for something as noble as education?

Compare this case with other countries. In Germany the tuition fees is highly subsidized by the govt. for both domestic and international students. In USA the education loan interest rate is 1-2% and easily available if you are national of USA or OECD countries, and on lenient terms to boot. A majority of students land pretty decent jobs after graduation if they are from a reputed institute. This is not true for India any more.

The role of banks smacks of opportunism. Education loan interest rates should be lower than that of car loans and house loans. (Image courtesy Mohallalive and Ecolizer)

Rishabh Agarwal is an MBA (PGPEX) graduate from IIM Calcutta. He is currently working as an Operations & Strategy Manager in the CEO’s office at Escorts.